SOA 2021 Retirement Risk Survey: An Interview With Barbara Hogg
By Patrick Ring
Retirement Section News, June 2022
I recently interviewed Barbara Hogg the chair of a Project Oversight Group (POG) appointed by the SOA Post Retirement Needs and Risk Committee to generate a biennial survey of retirement risks facing the nation. The POG worked with Greenwald Research to produce an 11th iteration of the survey that was conducted online of Americans ages 45 to 80.
The purpose of the survey is to evaluate Americans’ awareness of potential financial risks in retirement, how this awareness impacts the management of their finances with respect to retirement, and how Americans are managing the process of leaving the workforce. The survey was conducted by Greenwald Research.
Patrick Ring (PR): Can you tell us a little bit about your experience with retirement research and with various types of retirement plans?
Barbara Hogg (BH): For virtually my entire professional career, my focus has been on employer retirement programs—as a pension actuary, designing employer benefit programs, working with retirement plan administration, and leading retirement communication efforts. While I have a strong background in pension plans, my current work revolves primarily around defined contribution plans and the nuances you encounter in designing and administering programs.
Along the way, I’ve been closely aligned with a variety of retirement research activities including surveys (employer/plan sponsor and employee/individuals) and data analysis such as studying participant activity in defined contribution plans and analyzing retirement readiness. This research was primarily done from a thought leadership perspective, although I also did work with specific organizations. My interest in research was a catalyst for first getting involved in the SOA Committee on Retirement Needs and Risks several years ago.
PR: I also understand that you have experience with retirement communications. How has that helped give you perspectives that are valuable to this topic?
BH: For several years, I was in Aon’s communication practice, leading our efforts around retirement communication. In that capacity, I saw the challenges of communicating complex topics to individuals in different stages of life and with varying backgrounds. To effectively communicate about retirement topics often requires looking at a topic through a variety of frames—different levels of expertise, attention spans, etc.
The lenses we need to use when thinking about communication means uncovering individuals’ knowledge, beliefs, and priorities. The Retirement Risk Survey offers us insight into barriers people face when planning for retirement and who is facing those barriers.
PR: Why is this survey important to the SOA and the U.S. retirement system?
BH: We have a challenge in the U.S. as an individual’s retirement relies heavily on their ability to save while they are working. Multiple potential obstacles can derail an individual’s efforts to accumulate retirement savings. For one, prioritizing long-term needs over short-term spending can be hard for anyone but is extremely difficult for those who have trouble paying everyday bills or have a paycheck-to-paycheck financial planning timeframe. Using retirement savings before retirement (called “leakage”) is often where people turn for unexpected expenses or to fill income gaps. Beyond this, we also expect individuals to navigate complex tradeoffs (e.g., how and where they save) and manage their own risk in retirement, to make sure their savings—and thus retirement income—lasts as long as they do.
Given this heavy expectation for individuals to make smart choices in their long-term best interest, it becomes critical to understand how people look at risk and prepare for the future. And, importantly, how this varies across income levels, genders, race and ethnicity, and household status. The Retirement Risk Survey, along with other research that the SOA does in this space, provides insights that helps those working in the retirement space build products, frame planning decisions, create effective communication, and uncover where more work is needed to make a difference.
PR: Did any of the survey results surprise you?
BH: This survey was conducted in June 2021, which meant that the COVID-19 pandemic had been around awhile; yet there was a certain level of optimism as the markets had rebounded from their early drops and vaccines were widely available. Surprisingly, the aggregate results of the survey painted a picture that most people did not feel that COVID-19 had a material impact on their financial situation or retirement plans. That high-level result masked a different message. What we found when we dug deeper was a story that was hidden by averages. For those more susceptible to financial risk (lower pay, poorer financial health), COVID-19 was a catalyst that created the negative financial consequences. And the group negatively impacted experienced greater consequences from the pandemic; they were more likely to delay retirement, reduce spending, and expect the negative financial impact of COVID-19 to be long-term.
Another surprising item was the dramatic increase from prior surveys in concerns about being the victim of a fraud or a scam for both pre-retirees and retirees. While most concerns were level for pre-retirees and decreased for retirees, this one skyrocketed upward. In 2021, 43 percent of pre-retirees and 47 percent of retirees were concerned compared to just 31 percent and 36 percent, respectively, two years earlier. This was the only concern we tested where retirees were more concerned than pre-retirees. We can only speculate on why we saw such a large jump, but it is likely tied to both greater awareness and an increased incidence of cases.
PR: What was new in this survey compared to the prior surveys?
BH: Each survey has recurring content we want to track over time such as retirement risk and planning, retirement income and spending, and planning for and dealing with change. In addition, we have new topics we want to explore with each survey. One area we added this year was shocks and unexpected events. While we have looked at this topic in the past, we wanted to take a fresh look this year. For instance, we explored a variety of political, economic, and natural events (e.g., climate change, another pandemic). As you might expect, pre-retirees, with a longer time horizon, were more likely to feel these events could impact their future retirement security than retirees. And the potential impact was much more likely to be negative than positive.
We also wanted to explore support systems. Part of this exploration was uncovering expectations individuals have about getting care from family or friends later in life. We found that about three out of four pre-retirees and retirees have low expectations for support, expecting no more than a little support. Interestingly, past SOA research has shown a strong reliance on family and friends as people age, so it appears that individuals don’t appropriately anticipate this need. There is an opportunity to build this into more retirement planning discussions. Another angle we looked at for support systems was multigenerational households. And, among those who lived in multigenerational households (less than 10 percent of all respondents), a majority of respondents saw the benefits of a multigenerational household in getting financial or time resources support running the household.
Consistent with the SOA’s commitment to diversity and inclusion, we set up the survey to have a representative sample of Black/African American, Asian American, and Hispanic/Latino respondents in this year’s study. This gave us the ability to look at differences by race and ethnicity and highlight where differences were significant. For example, a significantly higher percentage of Black/African American and Hispanic/Latino retirees are less prepared to handle financial shocks, and a significantly higher percentage of Asian American pre-retirees and retirees are concerned about the social isolation caused by the pandemic.
PR: What are the most important findings you want the reader to take away from the survey?
BH: The findings from the 2021 Retirement Risk Survey cover many different topics with lots of rich data to understand the breadth of situations that pre-retirees and retirees face. There are a few things that this survey highlighted that I find especially important when we look away from the averages and see what is happening at the margins.
First, individuals—both pre-retirees and retirees—are in a precarious position when it comes to unexpected financial shocks. Many people have already experienced some type of financial shock and, for some of these, the financial shock had an extremely large impact on their assets and spending. Looking forward, the financial threshold respondents felt they could weather if they experienced a future financial shock is very low. This tells me that many individuals are one unfortunate event away from serious financial troubles.
Another finding is that individuals do not do much advance planning for changes over time. They tend to have a short-term focus; instead of planning, they just deal with the unexpected when it happens. While this does not surprise me from a behavioral perspective, it worries me because it leaves people vulnerable since they may be faced with making decisions at times when they are already under stress.
Rather than leave you only with negative findings, let me add a positive one—retirees, as a whole, have a retirement standard of living that meets or exceeds what they had expected before they retired. In other words, some of the lack of planning may work out.
PR: Prior surveys showed differences in results by economic status? Was this true in the last survey?
BH: The fact is that economic status has a significant impact on retirement preparedness and that was very apparent in this year’s survey. We looked at responses by three income and three asset tiers. The differences between the low tier and high tier are stark in many areas including retirement concerns, the likelihood of planning, and vulnerability to financial losses. As mentioned before, individuals in the low-income tier were much more likely to be impacted by COVID-19 and making lifestyle changes due to the pandemic.
Let’s use a couple of examples to illustrate the difference. Among pre-retirees with no more than $50,000 in household income, nearly two-thirds could not afford to spend more than $5,000 on an unexpected financial event. In contrast, only about one-tenth of those with household incomes of $100,000 were restrained to no more than $5,000. Among that same low-income group of pre-retirees, 57 percent felt they were unprepared for future financial events while only 15 percent of the high-income group felt either somewhat or very unprepared.
What these findings underscore is how intertwined an individual’s current financial situation is with their readiness and ability to plan and think about retirement. In some cases, the greatest hope for better retirement outcomes may be improving today’s financial outlook.
PR: How can the survey results be used and by whom?
BH: The Retirement Risk Survey is posted on the SOA website and can be shared broadly with others. This research may be helpful for actuaries working in retirement and employers as they assess their retirement and financial wellbeing programs. As the topic of this research is retirement risk and concern, we encourage professionals that help individuals plan for retirement to incorporate the results into how they approach and deliver services. Organizations that offer retirement planning tools and products may find the results helpful as well.
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the newsletter editors, or the respective authors’ employers.
Patrick Ring, ASA, volunteers as chair of the SOA Retirement Section Council’s Communications Team. He can be reached at pringactuary@gmail.com.